The IRS has raised the annual gift exclusion to $16,000 for 2022.1 What does that mean? An individual may gift to any other individual $16,000 in 2022 without reporting the gift. The recipient of the gift also does not need to report the gift as income on their taxes. Just note, that’s per person!
For example, Grandma is looking to make a gift to her grandchildren. She can gift all 5 of her grandchildren $16,000 for a total of $80,000. If invested well, for example if a portion of the gift is placed in a Roth IRA, she could help her grandchild start saving early for his or her retirement.
Another example is leaving money to a disabled loved one. In order to preserve the disabled person’s benefits, a gift can be made to an ABLE/STABLE account which pays for the disabled person’s qualified needs. In Arizona, the ABLE/STABLE account can reach $100,000 before it impacts Social Security Income benefits.2
So can you gift an unlimited amount to anyone? All of the annual gifts are subject to the lifetime gifting exclusion amount of $12,060,000 for 2022. But, estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exclusion to the surviving spouse. This requires timely file estate tax returns for the decedent with the surviving spouse.
Is gifting all this money going to hurt you if they drop the limits? No, the IRS clarified that individuals taking advantage of the increased gift tax exclusion amount in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.3
What to share your wealth? Check with your estate planning attorney, disability attorney or probate attorney to see how these gifting levels can help you. If you have any other questions, please feel free to contact me, Kelsi Lane, Attorney with Davis Miles McGuire Gardner at (480) 733-6800 or via email klane@davismiles.com.
Sources:
- What’s new – Estate and Gift Tax, Internal Revenue Service, https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax (last visited Jan 21, 2022).
- AZ ABLE – Achieving a Better Life Experience, Arizona Department of Economic Security, https://az-able.com/faq/ (last visited Jan 21, 2022).
- Estate and Gift Tax FAQs, Internal Revenue Service, https://www.irs.gov/newsroom/estate-and-gift-tax-faqs (last visited Jan 21, 2022).